Banks Are Literally Begging Americans To Take Out Loans And Max Out Credit Cards

Last month when looking at the latest bank balance sheets, we showed that something was "terminally broken" in the US financial system: specifically, we showed that a "stunning divergence" had emerged between the total deposits at big banks which had just hit a record high courtesy of the Fed's QE (as the fungible reserves injected by the Fed end up as cash on bank balance sheets and offset the concurrent surge in deposits) and the stagnant loan books, which had barely budged since the Lehman bankruptcy as most US consumers have no pressing need to expand businesses and ventures, a startling confirmation of the woeful state of the US economy when one peels away the fake facade of the record high stock market.

In fact, looking at the chart below, one can see that all the Fed has done since the (first) financial crisis is to force bank balance sheets to grow ever larger not due to loan growth but to accommodate the trillions in reserves which alas earn next to nothing - unless they are invested directly in risk assets as JPMorgan's CIO "Whale" did back in 2012 with rather unfortunate results - and which screams that something is terminally broken with the entire financial system.

But while banks and financial analysts may pretend otherwise, everyone knows that such "growth" predicated on a reserve sugar high is hollow at best, and is why banks - whose entire net interest income depends on loan growth - are so desperate to hand out loans.

How desperate? We got the answer yesterday with the latest, July, Senior Loan Officer Opinion Survey conducted by the Fed. We won't waste readers' time going over the specifics - we have done that frequently in the past most recently here - suffice it to say that all this survey measures is how tight - or alternatively, loose - bank lending standards are in anything from C&I loans to auto loans, to residential loans, to multifamily loans, all the way to that American staple: credit cards. A positive net number means standards are tight - as they were in the second quarter of 2020 - while a negative number means standards are loose. Or as the case may be right now, the loosest they have ever been.

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